CRISES & CONFLICTS

CRISES & CONFLICTS IN FAMILY BUSINESSES


When it comes to crises and conflicts, the focus is on the dynamics and interactions between family and company. But an equally important question is how can a family trigger company crises, and how can a family and company become resilient to external crisis factors (such as changes in the market and competitive dynamics)? How can the interests of the company and those of the family intelligently be brought into balance?

 

(Video available in German)

CONFLICTS IN FAMILY BUSINESSES


Family businesses are more likely to experience conflicts and there is a greater risk of conflict dynamics becoming very severe. At the same time, conflicts are unavoidable. They are part of everyday business and they encourage the continuous development of working procedures. So they should not be considered wholly negative. Freedom from conflicts is an unrealistic objective. Instead, conflict management as a leadership challenge means recognising destructive conflicts early on, dealing with them constructively, and, above all, preventing them from hardening and becoming chronic. This is especially important in family businesses, since they entail enormous complexity for everyone involved on account of the overlapping systems of family, company and shareholder group. One of the reasons for this is that different groups of people can very quickly become drawn into conflicts and can contribute towards the dynamics of escalation through their interactions in many different places.

WITTEN THINKING

WIFU has been researching this topic for some years, crucial as it is to the ability of family businesses to survive. Certain factors have emerged that appear especially relevant in the context of family businesses.

The chances of constructively resolving conflicts and crises increase if…
  •  …business families take time for the family, discuss critical issues openly and come to an agreement about them. This can lead to a family constitution.
  • …business families give priority to the conditions under which family members can enter operative business or consultative bodies, and what the criteria are for the qualification of leadership successors. Outside management should not be a taboo subject in this respect.
  • …family members address and process emotional conflicts appropriately – in other words, members of a business family are keen to improve the culture of how they interact with one another.
  • …business families are vigilant about and address conflicts of a material and process nature: optimising processes and structures, openly negotiating the distribution of responsibilities in the family and company.
  • …business families see the development of a family strategy as a joint responsibility, and they embrace and proactively address material conflicts about this topic.
  • …each family member is alert to anything indicating that conflicts within the business, between family and/or non-family members, might turn into relationship conflicts, escalate, and become chronic.
  • …each family member asks themselves in the event of a conflict whether they can put themselves in the shoes of the other and understand their motives for acting the way they do.
  • …an outside perspective of events is regularly sought in conflict situations. Anger makes you blind. A constructive question could be: “Is the thing that is happening something old or something new?” If it is a ‘stuck record’, then one might ask: “What would a new and unexpected action be for each of those involved?”
  • …business families work together (ideally during ‘good times’) to draw up rules on how to constructively deal with conflicts. If there are arrangements for dealing with conflicts, they will not usually escalate.
  • …, when it becomes clear at a certain point of escalation that the conflict can no longer be satisfactorily resolved, an external moderator is appointed who is not connected to the business or the family.
  • …the shareholder agreement includes ‘conflict clauses’ that clearly regulate the way conflicts are dealt with.

CRISIS DYNAMICS AND CRISIS MANAGEMENT


Crises mark a turning point in the corporate development process. They are as much a part of entrepreneurship as success. Every company faces a potential threat to its existence from dynamics in the market and rivals. Family businesses are often subject to an additional threat as a result of the ‘family factor’.

It determines the company crisis, which often results from escalating conflicts in the owning family. As a general rule, a crisis in a business will be accompanied by parallel and comparable crisis processes in the proprietor family.

If a crisis in a family business is to be resolved while the existing owners remain, it is essential for the crisis dynamics that are happening simultaneously in the business family are examined as well. In this context, an appointed restructuring and financial recovery team must consider a wider approach to crisis management.

THE WITTEN CRISIS MANAGEMENT MODEL

As well as the conventional aspects of crisis resolution, there are the specific peculiarities of the ‘family factor’ to consider. WIFU has developed its own crisis management model for this.

The Witten crisis management model

If the family factor has a constructive influence on resolving crises, then it should be systematically used; if it is destructive, then it needs to be ring-fenced by specific measures as part of financial recovery. As well as restructuring and reorientation in the business, appropriate steps should be taken to organise the decision-making abilities of the shareholder group, to define a financial recovery strategy within the owning family, and, if necessary, to constructively address the family conflicts that almost always occur in such situations.

LITERATURE (SELECTION AVAILABLE IN GERMAN)


RESEARCH PROJECTS


  • Coping with crises in family businesses
  • Crises and conflicts in family businesses
  • Stakeholder crises in family businesses

EVENTS


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